The Governor of California
President pro Tempore of the Senate
Speaker of the Assembly
State Capitol
Sacramento, California 95814

Dear Governor and Legislative Leaders:

This report presents the results of a follow-up audit the California State Auditor conducted concerning the efforts by Laboratory Field Services (Laboratory Services)—within the California Department of Public Health (Public Health)—to implement recommendations from an audit report that we issued in September 2008. The report titled Department of Public Health: Laboratory Field Services’ Lack of Clinical Laboratory Oversight Places the Public at Risk, Report 2007-040, examined Laboratory Services’ ability to oversee clinical laboratories (labs) that analyze human specimens such as blood, tissue, and urine so that medical professionals can make diagnoses and prescribe treatment.

In this follow-up audit, we found that Laboratory Services is still not performing the oversight activities with which it is entrusted and its management of the program remains inadequate. Laboratory Services has not fully implemented many of the recommendations from our September 2008 audit report. Laboratory Services still only inspects approximately half of California labs and it does not have a process to ensure that it is aware, in a timely manner, when out-of-state labs that are licensed in California fail required proficiency testing. Laboratory Services also continues to not investigate all the complaints it receives and has issued only a small number of sanctions in the past seven years even though it is responsible for overseeing more than 22,100 labs. Moreover, we found that Laboratory Services made an unauthorized fee increase in January 2014 that has resulted in labs overpaying it more than $1 million in fees, and since 2008 it has collected more than $12 million in lab fees that it has not spent. Finally, Laboratory Services has missed opportunities to more effectively use its limited personnel by partnering with other organizations that could help it meet its workload obligations under state law.

Since the problems that have plagued Laboratory Services have persisted since our last audit, we believe the State’s consumers have, in effect, been relying on federal oversight the Centers for Medicare and Medicaid Services (CMS) provides through its administration of the Clinical Laboratory Improvement Amendments of 1988 (CLIA). In fact, we believe Laboratory Services’ oversight of lab facilities largely duplicates federal oversight with no meaningful benefit to consumers. State law and CLIA are nearly equivalent in their mandates, and the oversight required is redundant: Both Laboratory Services and CMS collect fees from labs to perform inspections, monitor proficiency testing, investigate complaints, and issue sanctions. The Legislature should repeal state law requiring that lab facilities be licensed by the State, thus reducing the regulatory and financial burden on lab facilities while continuing to enforce the State’s requirements for laboratory personnel.